Economic Policy Review ISSN 1313 - 0544

Bulgaria ranked 68th for economic freedom; Hong Kong and Singapore number one and two

09.10.2008
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Bulgaria got a 68th place in The Economic Freedom of the World, Annual report 2008, prepared by the Canadian Institute "Fraser" and distributed in Bulgaria by the Institute of Market Economics.

According to this report, by taking into account the changes in methodology and recalculation for the previous years, Bulgaria has moved upwards by 6 places from the last year's 74th position. Immediately ahead of Bulgaria are countries such as Armenia, Ghana and Albania. The Bulgarian score has increased from 6.58 to 6.82, from a maximum of 10.

The report is placing Hon Kong at the first place, followed by Singapore and New Zeeland. Zimbabwe is again at the lowest level of economic freedom among 141 countries included in the study, together with Angola and Myanmar. 

The economic Freedom of the World 2008 uses 42 different parameters to create a unified index, which rates the countries according to the degree of economic freedom.  The main pillars of economic freedom are: personal choice, voluntary exchange, free competition and protection of the right of private property. The economic freedom is measured in five different areas: (1) size of Government; (2) legal structure and protection of property rights; (3) access to sound currency; (4) freedom of international trade and (5) regulation of credits, labor and business.

The study shows that people living in countries with higher levels of economic freedom enjoy higher level of prosperity, greater personal freedom and live longer. This year the report includes a new study, which shows the influence of economic freedom on the reduction of poverty. 

The importance of high economic freedom is not understood by everyone. It is however very important, mostly for the individual, as it means opportunities for individual choice, freedom to make voluntary transactions, to compete with everybody else and to be sure about your property. The economic freedom gives the opportunity to people to be responsible for their own lives and future. With higher economic freedom the people and business are less dependent on the Government." - stated Ms Svetla Kostadinova, executive director of the Institute for Market Economics.

Source: "The economic Freedom of the World 2008", Fraser Institute, Canada

Source: "The economic Freedom of the World 2008", Fraser Institute, Canada

The results of Bulgaria (from 1 to 10, where higher value means higher level of economic freedom) according to the key components of economic freedom (data for 2006):

  • Size of the Government: the score is 4.95, which is the highest achievement in this category until now. The problems in this category are related mainly to the high relative weight of the social security payments and the relatively large number of Government companies. Practically there are still sectors which are completely controlled by the state.
  • Legal structure and protection of property rights: the score is 5.61, which is a slight step back compared to previous years. We get significantly lower result with respect to the independence of the legal system and impartiality of the courts, which is one of the most serious problems facing our country. The protection of property and security of contact execution also scores low.
  • Access to sound currency: the score is 8.76, which is our best result for a separate category. The security insured by the currency board plays a significant role in this case and predetermines the high score.
  • Freedom of international trade: the score is 7.64, which is the best result in this category until now. In this case the main role is played by our membership in the EU, which is bringing a lot of positives, but also some negatives as well. The so called regulation barriers for trade continue to be a burden for our country.
  • Regulation of credit, labor and business: the result is 7.11, which again is the highest result in this category compared to previous years. The high administrative costs, the difficulties when hiring and firing workers, the existence of price controls in many sectors, as well as corruption continue to be on the way of economic freedom and respectively to impede economic growth.

Source: "The economic Freedom of the World 2008", Fraser Institute, Canada

The economic freedom in Bulgaria continue to expand, but with slow pace. The problems continue to be with respect to excessive government intervention in the economy and the lack of adequate protection of the right of ownership. The possibility to acquire property is the main motivating force in a market economy.  In order to warrant this possibility there must be present supremacy of the law, independence of the judiciary system and impartiality of the courts. Protection of the right of ownership gives confidence to the people to undertake economic activity and to make long term plans, because they are confident that their income could not be taken away.  Otherwise the freedom of exchange does not make sense, since the individuals would not be confident that they could use the fruits of their activity." - Mr. Peter Ganev, economist with IME said.

International Rankings

In this year's main index, Hong Kong retains the highest rating for economic freedom, 8.94 out of 10. The other top scorers are: Singapore (8.57), New Zealand (8.28), Switzerland (8.2), the United Kingdom (8.07), Chile (8.06), Canada (8.05), Australia (8.04), the United States (8.04), and Ireland (7.92).

The rankings and scores of other large economies are Germany, 17 (7.64); Taiwan, 18 (7.63), Japan, 27 (7.48); South Korea, 29 (7.42); Sweden, 33 (7.35); France, 45 (7.19); Italy, 49 (7.15); Mexico, 58 (6.98); India, 77 (6.59); China, 93 (6.29); Brazil, 96 (6.16); and Russia, 101 (6.12).

Several countries have substantially increased their ratings and become relatively free during the past decade. Estonia increased its rating by 2.27 points since 1995 and is now one of the freest economies in the world. Lithuania and Latvia have increased their ratings by at least two points since 1995 and their 2006 ratings are greater than 7.0. The ratings of Cyprus, Hungary, Kuwait, and South Korea have also improved substantially and their ratings are now 7.3 or more. Two African economies, Zambia and Ghana, have become substantially freer with ratings of 7.13 and 7.04, respectively.

However, African nations continue to occupy most of the bottom spots on the index with the lowest levels of economic freedom, joined by Venezuela and Myanmar. The 10 nations with the lowest levels of economic freedom are: Zimbabwe (2.67), Angola (4.10), Myanmar (4.19), the Republic of Congo (4.64), Niger (4.67), Venezuela (4.67), Guinea-Bissau (5.01), Central Africa Republic (5.01), Chad (5.12), Rwanda (5.23), and Burundi (5.23).

"Weakness in the rule of law and property rights is particularly pronounced in sub-Saharan Africa, among Islamic nations, and for many nations that were part of the former Soviet bloc," said James Gwartney, lead author of the report and professor of economics at Florida State University.

"Many Latin American and Southeast Asian nations also score poorly for rule of law and property rights. The nations that rank poorly in this category also tend to score poorly in the trade and regulation categories, even though several have reasonably sized governments and sound money."

Economic Freedom and World Poverty

The 2008 edition of the Economic Freedom of the World report includes new research from Gwartney and Seth W. Norton, professor of business at Wheaton College, examining the role of economic freedom in eliminating poverty with a particular focus on sub-Saharan Africa.

They point out that numerous studies have shown that countries with more economic freedom grow more rapidly and achieve higher per-capita income levels than those that are less free; therefore, it would seem that this growth should also help reduce poverty.

Gwartney and Norton note that since economic growth is the driving force underlying reductions in poverty, countries such as Chile, Peru, Thailand, Malaysia, South Korea, China, and India have seen their poverty rates decrease in recent decades because these countries have achieved rapid economic growth.

"If a country adopts reforms supportive of economic freedom, will the wellbeing of the poor improve? Theory indicates that the answer to this question is "yes," but substantial reductions in poverty are likely to take some time," Norton said.

"It will take time for the new policy direction to acquire credibility, investors and other decision-makers to respond to the more attractive environment, and the rate of growth to increase. As the higher level of economic freedom is sustained and the more rapid growth persists, poverty rates will fall, and they will fall by larger amounts with the passage of time."

The authors conclude that the institutions and policies of most sub-Saharan African nations are highly inconsistent with economic growth. The failure of the legal system to protect property rights, the roadblocks imposed by trade restrictions, and the heavy regulation and administrative costs imposed on business undermine economic growth because they stifle the gains from trade, entrepreneurship, and investment. Given that most of the sub-Saharan countries are relatively small, the high trade barriers are particularly damaging.

In order to encourage economic growth in Africa, Norton and Gwartney recommend that African nations reduce and eliminate trade barriers and business regulations; improve their legal system; and develop an interstate highway system through Africa.

About the Economic Freedom Index

Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom.

This year's publication ranks 141 nations representing 95% of the world's population for 2006, the most recent year for which data are available. The report also updates data in earlier reports in instances where data have been revised.

For more information on the Economic Freedom Network, data sets, and previous Economic Freedom of the World reports, visit http://www.freetheworld.com/